The Commissioner Of Income Tax Chennai v. M/S.tamilnadu Warehousing Corprn. 100,Anna Salai Guindy Chennai-32

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 10.10.2006 Coram : THE HONOURABLE MR.JUSTICE R.BALASUBRAMANIAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.2265 of 2006 The Commissioner of Income TaxChennai ..Appellant -Vs.- M/s.Tamilnadu Warehousing Corprn.100,Anna SalaiGuindyChennai-32. ..Respondent Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Madras, 'B' Benchdated 25.11.2005 in I.T.A. No.1171/Mds/1994 for the assessmentyear 1989-90.(C. NO. 218-II/12/93-94 dated 3.2.1994 on the file ofthe Commissioner of Income Tax Tamil Nadu I, Madras - 34 ITA NO.487/91-92 DATED 4.8.1992 on the file of the Commissioner of IncomeTax (Appeals) V Chennai against PAN/GIR NO. 47-004-CZ-7893/9-Jdated 31.1.1992 on the file of the Deputy Commissioner SpecialRange I, Chennai For Appellant : Mrs.Pushya Sitaraman (Judgment of the Court was delivered by P.P.S.Janarthana Raja, J.) This appeal is filed by the Revenue under Section 260A of theIncome Tax Act, 1961 in I.T.A. No.1771/Mds/1994, passed by theIncome Tax Appellate Tribunal, Madras, 'B' Bench raising thefollowing substantial questions of law. "(i) Whether in the facts andcircumstances of the case the Tribunal was https://hcservices.ecourts.gov.in/hcservices/ right in quashing the order passed underSection 263 on the ground that theCommissioner of Income Tax had not stated inhis order as to how the assessment order waserroneous and prejudicial to the interest ofthe revenue? (ii) Whether in the facts andcircumstances of the case the Tribunal wasright in looking at the form of theCommissioner's order of revision rather thanthe substance of the same? 2.The brief facts leading to the above questions of laware as under: The assessee is a company in which the public aresubstantially interested. The relevant assessment year is 1989-90and the corresponding accounting year ended on 31.03.1989. Theassessee company derives income from the following sources:- (i) Warehousing charges(ii) Supervision charges`(iii) Fumigation charges (iv) Weigh bridge receipts (v) Income from other sources, such as interest fromdeposits, sale of tender forms. (vi) Rent received from staff quarters. The assessee filed Return of income for the assessment year 1989-90 on 26.12.1989 as Nil income. Later, the assessee filed revisedReturn on 15.11.1991 returning Nil income. The revised Return wasfiled beyond the time limit prescribed under the Act. The samewas ignored by the Assessing Officer and the assessment wascompleted under Section 143(3) of the Income-tax Act (hereinafterreferred to as the "Act") on 21.01.1992 and determined the totalincome at Rs.13,14,679/-. The assessee surrendered the GroupGratuity Scheme with LIC and received a sum of Rs.8,22,925/-during the year relevant to the assessment year 1989-90. As therewas no proper enquiry made by the Assessing Officer in theassessment completed on 21.01.1992, the Commissioner of Income-taxpassed order under Section 263 of the Act and set aside theassessment, with a direction to the Assessing Officer to assessthe said amount under Section 41(1) of the Act for the assessmentyear 1989-90. Aggrieved by the order, the assessee filed an appealbefore the Income Tax Appellate Tribunal (hereinafter referred toas the "Tribunal"). The Tribunal allowed the appeal and set asidethe order of the Commissioner of Income-tax. 3. Learned Standing Counsel appearing for the Revenuesubmitted that no enquiry made by the Assessing Officer in respectof the assessability of the amount received by the assessee fromGroup Gratuity Scheme with LIC and hence the said order ofassessment is erroneous and also prejudicial to the interest ofthe Revenue. When both the conditions are satisfied, theCommissioner is right in invoking the provisions of Section 263 ofthe Act. Hence the order of the Tribunal is wrong, illegal,without basis and justification. 4.Heard the counsel. Section 263 of the Act which isrelevant for the purpose, reads as under: "263. Revision of orders prejudicial toRevenue - (1) The Commissioner may call forand examine the record of any proceeding underthis Act, and if he considers that any orderpassed therein by the Assessing Officer iserroneous in so far as it is prejudicial tothe interests of the Revenue, he may, aftergiving the assessee an opportunity of beingheard and after making or causing to be madesuch inquiry as he deems necessary, pass suchorder thereon as the circumstances of the casejustify, including an order enhancing ormodifying the assessment, or cancelling theassessment and directing a fresh assessment." Supreme Court judgment reported in 243 ITR 83 in the case ofMalabar Industrial Co. Ltd. Vs. Commissioner of Income-tax,considered the scope of the above provision and held as follows: "A bare reading of this provision makes itclear that the prerequisite to the exercise ofjurisdiction by the Commissioner suo motuunder it, is that the order of the Income-taxOfficer is erroneous in so far as it isprejudicial to the interests of the Revenue.The Commissioner has to be satisfied of twinconditions, namely, (i) the order of theAssessing Officer sought to be revised iserroneous; and (ii) it is prejudicial to theinterests of the Revenue. If one of them isabsent - if the order of the Income-taxOfficer is erroneous but is not prejudicial tothe Revenue or if it is not erroneous but isprejudicial to the Revenue - recourse cannotbe had to section 263(1) of the Act. There can be no doubt that the provisioncannot be invoked to correct each and everytype of mistake or error committed by theAssessing Officer, it is only when an order iserroneous that the section will be attracted.An incorrect assumption of facts or anincorrect application of law will satisfy therequirement of the order being erroneous. Inthe same category fall orders passed withoutapplying the principles of natural justice orwithout application of mind." The Tribunal correctly followed the above principles of theSupreme Court and held as follows: "For the purpose of invoking provisions ofsec.263, twin conditions i.e. (i) thatassessment order was erroneous and (ii) it wasprejudicial to the interests of Revenue, areto be satisfied. There is no finding of thefact as to what extent amount was claimed asdeduction in a particular assessment. Theassessee has admitted the amount ofRs.8,22,925/- as liability in the balancesheet. Merely because the amount was notexamined by the AO for the purposes of incometax cannot be a condition for cancellation ofthe assessment order u/s 263 of the Act. Apositive finding has to be recorded by the CITthat the assessment order was erroneous aswell as prejudicial to the interests of theRevenue while invoking the provisions ofsec.263 of the Act. In this case the ld. CIThas not given a finding as to how the orderwas erroneous and prejudicial to the interestsof Revenue. Therefore, twin conditionsnecessary for invoking provisions of sec.263are not satisfied. Such an order has no legsto stand and deserves to be quashed. Weaccordingly cancel the order passed u/s 263 ofthe Act and restore the assessment orderpassed by the A.O." From a reading of the above reasoning of the Tribunal, it is clearthat the assessee has continued to show the admitted amount ofRs.8,22,925/- as liability in the balance sheet. The undisputedfact is that it is a liability reflected in the balance sheet.Once it is shown as liability by the assessee, the CIT is wrong in https://hcservices.ecourts.gov.in/hcservices/ holding that the same is assessable under Section 41(1) of theAct. Unless and until there is a cessation of liability, Section41 will not be pressed into service. 5.In view of the foregoing reasons, we find the reasoningby the Tribunal was based on valid materials and evidence andhence there is no error or legal infirmity in the order of theTribunal so as to warrant interference. Hence, no substantialquestions of law arise for consideration of this Court and the taxcase is dismissed. No costs.Tr/km Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To 1. The Assistant Registrar Income Tax Appellate Tribunal Rajaji Bhavan, Besant Nagar Chennai-600 090. 2. The Commissioner of Income Tax (Appeals)V 121, Mahatma Gandhi Road, Chennai-600 034. 3. The Commissioner of Income Tax Tamil Nadu- IChennai - 34 4. The Deputy Commissioner of Income Tax Spl.Range I, Madras. JRG(CO)NM(31.10.2006) Tax Case (Appeal) No.2265 of 2006